By Sinichiro Abe, Akira Inoue, Junya Ae and Michio Suzuki (Baker McKenzie Tokyo) The Antimonopoly and Fair Trade Maintenance Act 1947 (Antimonopoly Act) governs antitrust and unfair business practices in Japan. Practices covered by the Antimonopoly Act include exclusive dealing, monopolization, price discrimination, predatory pricing, cartels, primary boycotts, tying arrangements, resale price maintenance and unwarranted abuse of bargaining position when dealing with another party.
There is no general provision in the Antimonopoly Act which prohibits anticompetitive practices. The Antimonopoly Act is divided into four parts:
- the first part deals with unreasonable restraints of trade (cartels);
- the second part distinguishes between “private monopolization” (which results from an intended exclusion or control of competitors);
- the third part deals with unfair trade practices; and
- the fourth part deals with mergers and acquisitions.
The Antimonopoly Act is administered by the Fair Trade Commission (Commission), which is an independent administrative commission. The Commission’s powers include the power to establish fair competition rules, designate unfair business practices, investigate, adjudicate and dispose of a case and issue cease-and-desist orders and surcharge payment orders to enterprises that violate the Antimonopoly Act. Any person (including individuals) may report a violation of the Antimonopoly Act to the Commission and ask the Commission to take appropriate measures to investigate and make a determination on an alleged violation. After that, the Commission has to initiate a necessary investigation. If the Commission conducts an administrative investigation, the investigator is designated from the staff of the Commission by the Commission. If the investigator of the Commission determines that an enterprise violates the Antimonopoly Act, the Commission issues cease-and-desist orders and/or surcharge payment orders to the enterprise. The enterprise may request the Commission to conduct a hearing proceeding regarding the said order if the enterprise is dissatisfied with the order. In the hearing proceeding, the hearing examiner who is designated from the staff of the Commission by the Commission decides the validity of the hearing request by the enterprise after hearing both the investigator’s opinion and the enterprise’s opinion. If the enterprise is dissatisfied with the decision, it may file a suit to rescind the said decision with the Tokyo High Court. The latest amendment to the Antimonopoly Act, enacted and promulgated in December 2013 (2013 Amendment), will significantly change the above-mentioned regime of appeal against administrative orders issued by the Commission. As the 2013 Amendment becomes effective, the hearing proceeding will be abolished and replaced by the process of an appeal to a district court. Given that the complex economic issues often raised in antitrust cases require expertise in both law and economics, Tokyo District Court will have exclusive jurisdiction over the first instance of appeals against administrative orders issued by the Commission, in order to ensure consistency among judgments and to accumulate specialized knowledge. Similarly, the Tokyo High Court will have exclusive jurisdiction over the second instance of the said appeals. In addition, the number of judges composing the panel at Tokyo District Court and Tokyo High Court may be increased as compared to general civil/criminal cases, which is aimed at the careful examination of the antitrust cases.
3.1 Cartel conduct
The phrase “unreasonable restraint on trade” as used in the Antimonopoly Act refers to situations in which: Any enterprise, by contract, agreement or any other concerted action (irrespective of the name) with another enterprise, mutually restrict or conduct their business activities in such a manner as to fix, maintain, or increase prices, or to limit production, technology, products, facilities, or customers or suppliers, thereby substantially restraining, contrary to the public interest, competition in any particular field of trade. An “unreasonable restraint on trade” exists if the following elements can be established:
- a contract, agreement or other concerted action between two enterprises to mutually restrict or conduct business activities;
- to fix, maintain, or increase prices, or to limit production, technology, products, facilities, customers, suppliers or the like;
- substantially restrains competition in any particular field of trade; and
- contrary to the public interest.
The Antimonopoly Act regulates not only domestic cartels consisting of domestic Japanese enterprises, but also international cartels involving foreign enterprises. The Commission and Courts’ treatment of price-fixing cartels comes close to applying the principle of “per se” illegality. An agreement between competitors that does not affect the prices of products is, however, not per se illegal, and whether or not such agreement is in fact considered to substantially restrain fair competition in the market and amount to an illegal cartel will depend on market conditions.
Unfair Trade Practices
The Antimonopoly Act and the Fair Trade Commission Public Notice titled Designation of Unfair Trade Practices stipulate certain types of unfair trade practices. The main unfair trade practices are as follows:
3.2 Price discrimination
It is unlawful to supply or receive commodities or services at prices which unreasonably discriminate on the basis of region or customer.
Competitors must not, without justifiable cause, refuse to deal with, or decide jointly to limit dealings with, a specified party. In addition, competitors must not, without justifiable cause, force other parties not to deal with, or to limit their dealings with, a specified party.
3.4 Unjust low price sales
It is unlawful to unjustly supply goods or services for a low consideration, thereby tending to cause difficulties to the business activities of other enterprises. There is no problem in providing goods at a low price that has been achieved through an enterprise’s efficient operations, but if an enterprise tries to acquire customers by offering a low price that totally disregards profitability, it may be unlawful. With regard to unjust low price sales, the Commission has issued the Guidelines concerning Unjust Low Price Sales under the Antimonopoly Act on 18 December 2009, as amended on 23 June 2011.
3.5 Resale price maintenance
It is unlawful, without justifiable cause, to require wholesalers or retailers to maintain wholesale or resale prices at a specified level.
3.6 Tying arrangements
It is unlawful to impose unfairly on a third party a condition that, in order to purchase certain commodities, it must also purchase other designated commodities.
3.7 Exclusive dealing
This is regulated under the unfair business practices provisions of the Antimonopoly Act. It is, for example, prohibited to deal with a party on condition that the party does not conduct business with a competitor, thus reducing the business opportunities for the competitor.
3.8 Trading on restrictive terms
The Fair Trade Commission Public Notice titled Designation of Unfair Trade Practices stipulates that an enterprise shall not trade with another party on conditions which unjustly restrict any trade between the said party and its other transacting party or other business activities of the said party. This provision is the general clause which covers unjustifiable restriction against a counterparty other than resale price maintenance and exclusive dealing as discussed above. The criteria for the legality of typical restrictions against a counterparty, such as restrictions on distributors’ handling of competing products, restrictions on distributors’ sales territory, restrictions on distributors’ customers, restrictions on retailers’ sales methods, and the like, is explained in the Guidelines Concerning Distribution Systems and Business Practices under the Antimonopoly Act (Distribution Guidelines) issued on 11 July 1991, as amended on 1 November 2005, 1 January 2010 and 23 June 2011.
3.9 Interference with a competitor’s transactions
It is unlawful to unjustly interfere with a transaction between another enterprise who is in a domestic competitive relationship with oneself or with the corporation of which one is a stockholder or an officer, and its transacting party, by preventing the effecting of a contract, or by inducing the breach of a contract, or by any other means whatsoever.
3.10 Abuse of superior bargaining position
Where if one party (Party A) makes a request, etc., that is substantially disadvantageous for the other party (Party B), Party B would be unable to avoid accepting such a request, etc., on the grounds that otherwise Party B would have difficulty in continuing the transaction with Party A and thereby Party B’s business management would be substantially impeded, it is unlawful for Party A to conduct certain designated acts of imposing disadvantageous conditions on Party B in the transaction. In order to clarify the interpretation by the Commission, the Commission has issued the Guidelines Concerning Abuse of Superior Bargaining Position under the Antimonopoly Act on 30 November 2010.
The Antimonopoly Act prohibits such business activity, by which any enterprise excludes or controls the business activities of other enterprises, thereby causing, contrary to the public interest, a substantial restraint of competition in any particular field of trade. Private monopolization includes two types, “control type private monopolization” and “exclusionary type private monopolization,” and the surcharge rate is different between these two types, as discusses below under “Penalties and liabilities”. The “control type” means that an enterprise restrains other enterprises’ decision-making on their business activities and thereby bends them to its will. The “exclusionary type” refers to conduct that would cause difficulty for other enterprises to continue their business activities or for new market entrants to commence their business activities. With regard to “exclusionary type monopolization,” in order to clarify the interpretation by the Commission, the Commission has issued the Guidelines for Exclusionary Private Monopolization under the Antimonopoly Act on 28 October 2009.
The Antimonopoly Act prohibits mergers and acquisitions, if they would result in a substantial restraint of competition in any particular field of trade. The Commission may review a merger and acquisition, and may prevent the merger from proceeding if it would result in a substantial restraint of competition. If the transaction has already taken place, the Commission also has the power to order the parties to take a range of remedial steps, including divestiture or transfer of a business, in order to restore competition. In order to clarify how the potential effect of a merger on competition is reviewed and evaluated, the Commission has issued the Guidelines to Application of the Antimonopoly Act Concerning Review of Business Combination (Guidelines). The Guidelines declare that the Commission will use the Herfindahl-Hirschman Index (HHI) as a safe harbour. Specifically, the Guidelines state that the scrutiny of a business combination will not be required in the following cases:
- the HHI, after the transaction, is 1,500 or less.
- the HHI, after the transaction, is over 1,500 but does not exceed 2,500, and the HHI increases by 250 or less as a result of the transaction.
- the HHI after the transaction is over 2,500, but the HHI does not increase by more than 150 as a result of the transaction.
Although for this substantive analysis, the Commission previously limited the geographic market range to within Japan, the revised Guidelines have made it clear that the Commission will take into consideration the presence of competing overseas suppliers, which can affect the market within Japan.
5.1 Mergers of companies
If two companies (including foreign companies) merge and (i) the group of combined companies to which one of the parties to the transaction belongs has sales in Japan of more than JPY20 billion; and (ii) the group of combined companies to which any other party to the transaction belongs has sales in Japan of more than JPY5 billion, details of the proposed merger must be notified to the Commission at least 30 days prior to the proposed merger.
5.2 Stock acquisitions by a company
In the case of a stock acquisition by a company (including foreign companies), a report on the stock acquisition must be submitted to the Commission at least 30 days prior to the proposed acquisition, where:
- the total amount of sales in Japan of the group of combined companies to which the acquirer belongs exceeds JPY20 billion;
- the total amount of sales in Japan of the target company and its subsidiary exceeds JPY5 billion; and
- as a result of the acquisition, the aggregate percentage shareholding (i.e., voting rights) of the group of combined companies to which the acquirer belongs would move to above 20 percent or to above 50 percent, respectively, of the total issued shares (i.e., voting rights) of the target company.
5.3 Other acquisitions (business acquisitions)
Details of the proposed acquisition must be filed with the Commission as part of a notification 30 days prior to completion of the acquisition, where the acquirer belonging to the group of combined companies whose total amount of sales in Japan exceeds JPY20 billion acquires any of the following:
- The entire business from a company with sales in Japan of more than JPY3 billion;
- The substantial part of a business, or entire or substantial part of the fixed assets of the business from a company with relevant sales in Japan of more than JPY3 billion.
5.4 Procedures of review of business combination
When a notification is filed with the Commission, the Commission reviews the said business combination to be conducted by the notifying company. As a result of the review, if the Commission ultimately judged that the said business combination is problematic in light of the Antimonopoly Act, a cease-and-desist order is issued by the Commission after the notice prior to the cease-and-desist order (prior notice) given to the notifying company. The concrete procedure of the review is as follows:
- after filing a notification, the notifying company is prohibited from implementing the business combination, such as a merger and stock acquisition, until the expiration of the 30-day period from the date of the Commission’s receipt of the said notification. The Commission may shorten the 30-day period if it finds it necessary, when the notifying company requests it.
- during the 30-day period (or during a shortened waiting period), the Commission will normally either: (i) judge that the said business combination is not problematic in light of the Antimonopoly Act and give notification to the effect that it will not issue a cease-and-desist order, or (ii) judge that a more detailed review is necessary and request for the submission of the necessary reports, information or materials.
- in the case of (ii), the period of the review is extended until 120 days after the date of the receipt of notification or 90 days after the date of the receipt of all reports, etc., whichever is later. During the extended period, the Commission will either (a) judge that the business combination in question is not problematic in light of the Antimonopoly Act and give notification to the effect that it will not issue a cease-and-desist order, or (b) provide prior notice. After providing prior notice to the notifying company, the Commission issues a cease-and-desist order. The Commission may decide not to issue a cease-and-desist order after it gave prior notice if the notifying company has, for instance, offered to take remedy.
A notifying company may consult the Commission prior to filing a notification with regard to method to make the notification and to seek the view of the Commission related to the method (e.g., the view of the scope of the market).
The Antimonopoly Act provides for surcharges, fines and imprisonment. Where a price-fixing cartel or a control type private monopolization has been formed, the offending parties may be ordered to pay an administrative surcharge computed on the basis of a surcharge rate applied to the total sales related to the cartel or the control type private monopolization during the period the cartel or the control type private monopolization was in place (maximum three years). A surcharge rate of the cartel is determined within the range from 1% to 10% depending on the scale and the category of business of the offending parties and a surcharge rate of a control type private monopolization is determined within the range from 2% to 10% depending on the scale of the offending parties. Recent amendments to the Antimonopoly Act increased the surcharge amount for cartel leaders by 50% and introduced surcharges for the following acts:
- exclusionary type private monopolization (surcharge rate: 1% to 6% depending on the category of business)
- unjust low price sales if repeated (surcharge rate: 1% to 3% depending on the category of business)
- discriminatory pricing if repeated (surcharge rate: 1% to 3% depending on the category of business)
- concerted refusal to supply if repeated (surcharge rate: 1% to 3% depending on the category of business)
- resale price restriction if repeated (surcharge rate: 1% to 3% depending on the category of business)
- abuse of superior bargaining position if continued (surcharge rate: 1%)
With regard to (a) to (f) above, the amount of surcharge is computed on the basis of respective surcharge rates applied to total sales (in case of (f), total transaction amount) related to the violation act during the period the violation act was in place (maximum of three years). Those who have engaged in unreasonable restraints on trade or private monopolization may be sentenced to imprisonment for up to five years or criminally fined up to JPY5 million (Article 89 of the Antimonopoly Act). The maximum fine for a company under the Antimonopoly Act is JPY500 million. The Antimonopoly Act prescribes strict liability for the following conduct:
- unreasonable restraints on trade;
- private monopolization;
- engagement in particular international agreements or contracts and trade associations contravening the Antimonopoly Act.
In the event of a civil suit under the Antimonopoly Act by a plaintiff for damages suffered as a result of such conduct, the plaintiff need not prove the facts of, or any negligence in relation to, the conduct determined to be an unreasonable restraint of trade, private monopolization or unfair trade practice by the Commission. In addition to the remedies under the Antimonopoly Act, the victims of anti-competitive conduct can file a civil damage suit in accordance with the Civil Code of Japan. Furthermore, any person whose interests are seriously infringed by unfair trade practices is entitled to file an application for an injunction.
A leniency program has been in effect since January 2006. Under the leniency program, there is immunity from or a reduction in surcharge payments if a violator of the rules of unreasonable restraints on trade applies for leniency by notifying the Commission of sufficient information concerning the violation in accordance with the leniency rules. The leniency program is not applicable to fines but the Commission has adopted a policy that it will not indict a first leniency applicant to the Prosecutor’s Office. The rates of leniency are as follows:
- the first application before investigation: total immunity from surcharge;
- the second application before investigation: 50% reduction in surcharge payments;
- the third application before investigation: 30% reduction in surcharge payments;
- the fourth and fifth application with new information provided before investigation: 30% reduction in surcharge payments;
- the application with new information provided within 20 business days after investigation to the extent of the third application after investigation and the fifth application in total including the applications before investigation: 30% reduction in surcharge payments.
An agreement made in a foreign country will be subject to Japanese jurisdiction so long as the contents of the agreement affect the Japanese market. Any activities of a foreign subsidiary within Japan would be directly subject to the Antimonopoly Act in the same manner as a Japanese entity. The Antimonopoly Act prohibits enterprises from entering into an international agreement or an international contract that pertains to matters constituting unreasonable restraints of trade or unfair trade practices.
On 5 February 2015, the Commission released its draft amendment to the Distribution Guidelines and is seeking public comments until 6 March 2015. The amendment involves the Commission’s view on the following issues:
- the criteria for judging the legality and illegality with respect to effects of vertical restraints on competition;
- “Justifiable grounds” of resale price maintenance;
- distribution research; and
selective distribution.  Effective date of the 2013 Amendment will be 1 April 2015. [wpdm_package id=’4258′]